BofA Upgrades Imperial Brands to Buy, Says Market Overreacted to Australia Slump

Bank of America upgraded Imperial Brands (LON: IMB) to “Buy” from “Neutral” on Wednesday, arguing that investors have overreacted to a sharp downturn in the tobacco group’s Australian operations. The bank maintained its price target of 3,200p, implying roughly 20% upside from current levels.

Shares in the FTSE 100 firm have fallen around 13% since a disappointing trading update on April 14, leaving the stock trading at about 7.6 times forward earnings, down from roughly 9 times before the announcement. BofA views this pullback as an attractive entry point.

The bank said Imperial’s first-half results were skewed by temporary one-off factors rather than any structural weakening in the core business. Australia, where revenue plunged by an estimated 45%-65% in the first half, was the primary drag—shaving two to three percentage points off group operating profit. However, BofA noted Australia now represents just 1% of tobacco and next-generation product sales, down from 3% a year earlier, sharply reducing its ability to derail future performance.

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Analysts remain confident Imperial will meet its guidance of 3%-5% operating profit growth this fiscal year, forecasting 3.2%. Looking further out, BofA sees upside versus consensus for 2027, helped by cost savings from a Taiwanese factory disposal and a German plant closure.

Elsewhere, growth in Africa, the Middle East, and Central/Eastern Europe—up roughly 13% excluding Australia—is offsetting near-term US competitive pressure. BofA also highlighted strong cash generation supporting buybacks, projecting about 10% compound annual EPS growth through 2030 alongside a 6.5% dividend yield.

Shares rose following the upgrade, trading up around 2.4% at 2,736p.